1. You are evaluating two possible projects for your company, both of which involve the development of a new kind of widget.' The projects are mutually exclusive, meaning that the company can invest in only one of them. Both projects require an initial investment of S1.2 million to be made in each of the next three years. Sales and profits will begin in the 4th year, and this is where the two projects differ. Project A, which is the high quality widget, is expected to have sales in year 4 of $900,000 and cash profits of $280,000. Profits are expected to increase at 6% annually forever. Project B which is the low quality widg expected to have the same sales in year 4, but profits of $350,000. However, because of better competition for the low quality widget, profits are expected to increases at only 4% annually. et, is Assume for simplicity that all cashflows occur at the end of the year. The cost of capital for both projects is 12%. (a) Which is the better project? How much is each project worth? (b) Suppose that you could increase the growth rate of project B to 6% by investing more. What is the maximum you would be willing to pay to get this higher growh? (c) You are not sure that l 2% is the right discount rate to use for the projects. How do the project values change if the discount rate rises to 13% or falls to 1 190? which project is more sensitive to changes in r? Why